A fisherman repairs his boat overlooking fishing boats that fish in the disputed Scarborough Shoal in the South China Sea, at Masinloc, Zambales, in the Philippines April 22, 2015. REUTERS/Erik De Castro

MANILA (Reuters) - A budding Philippines-China friendship could boost chances of removing one of their biggest bones of contention in the South China Sea, Beijing's ambassador said on Friday, as the two sides pursue broad business ties while still at odds over sovereignty.

Ahead of a high-profile visit to Beijing next week by Philippine President Rodrigo Duterte and at least 250 businessmen, China's ambassador to Manila, Zhao Jianhua, said there was common ground on the South China Sea that both sides could work from, including on the disputed Scarborough Shoal.

Duterte's rapprochement with China marks an astonishing reversal in Philippine foreign policy since July, when the Permanent Court of Arbitration (PCA) in The Hague ruled in favor of the Philippines in the South China Sea dispute.

Manila lodged the case in response to what is now a four-year blockade by China's coastguard at the Scarborough Shoal, a prime fishing patch.

China has never recognized the case, but has been outraged by it, leaving much of the region on edge and in fearing retaliation by a country with a rapidly expanding military and coastguard.

The PCA ruled on numerous issues but in terms of the Scarborough Shoal, it concluded no country had sovereign rights over the tranquil, rocky outcrop, thus all states with overlapping claims were entitled to fish there.

While generous with his praise of China, Duterte has still insisted Filipino fishermen should have unhindered access to the shoal.

Zhao, who speaks often and enjoys a public profile unusually high for a Chinese diplomat, said he was confident a solution could be found and eventually the two countries could create "a sea of peace and cooperation".

"The Chinese side is very much interested in fishery cooperation. That is a kind of response to your president's concern about fishermen," he said when asked by a reporter about granting Duterte his wish.

"We would like to explore the possibility of how we can handle it properly.

"I think both sides are going to be able to work on a possible solution to this problem."

It is unclear, however, where the common ground might be when China refuses to discuss the PCA ruling and Duterte continues to promise Filipinos he will not deviate from the content of the July 12 arbitral award.

The most notable point in the PCA's award was that China's claims to most of the South China Sea were groundless.

Zhao said more than a dozen Memoranda of Understanding would be discussed and finalised next week in Beijing and he predicted a "dramatic increase" in Chinese investment, and tourists to the Philippines.

China would provide soft loans and its firms would carry out major infrastructure works in the Philippines, he said.

Zhao said China might be open to discussions in future toward resuming joint development with the Philippines of offshore gas reserves, which were stalled at the peak of the sovereignty row.

He later told Reuters that China would be supporting a second drugs rehabilitation facility next year in the Philippines, funded by a private Chinese donor.